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Tuesday, April 5, 2016

Investment targets for next five years set to be slashed Poor past performance, political turmoil blamed

FHM Humayan Kabir

In a major policy shift, the
government is set to cut investment targets significantly for the next five
years amid prolonged political unrest and lower-than-expected growth in the
last few years, officials said Tuesday.

Officials said the government has proposed to cut the investment-GDP ratio by
4.3 to 4.8 percentage points as it has drafted a Medium-Term Macro-Economic
Framework (MTMF) for setting the economic goal at the upcoming Seventh
Five-Year Plan (FYP) under the Perspective Plan (2010-2021).

In its move, the General Economics Division (GED) has proposed to cut its
investment-GDP (Gross Domestic Product) ratio significantly by 4.4 percentage
points to 28.9 per cent for the next financial year (FY) 2015-16 from that of
33.3 per cent in the Perspective Plan, a Planning Commission (PC) official told
the FE.

The GED has also proposed to slash the investment-GDP ratio by 4.6 percentage
points to 29.5 per cent from 34.1 per cent in FY2017, by 4.3 percentage points
to 30.7 per cent from 35 per cent in FY2018, by 4.8 percentage points to 31.3
per cent from 36.1 per cent in FY2019 and by 4.8 percentage points to 32.2 per
cent from 37 per cent in the FY2020.

When asked, GED Member Professor Shamsul Alam told the FE that although the
investment growth projection is likely to be slashed a little bit, the
country's middle-income status would be achieved soon as per capita income will
rise significantly.

In the last financial year FY2014, Bangladesh's investment-GDP ratio was 28.69
per cent, a 2.31 percentage points lower than 31 per cent target in the
Perspective Plan.

The Foreign Direct Investment (FDI) in Bangladesh dropped to US$1.35 billion in
the last FY2014 from that of $1.73 billion in the previous FY2013, central bank
data showed.

The Bangladesh Bank (BB) in its latest monetary policy has projected to receive
$1.60 billion FDI in the current FY2015.

Meanwhile, Bangladesh's current Gross National Income (GNI) per capita stood at
US$1,190 till last FY2014.

As per the World Bank definition, income classification by GNI per capita for
lower middle income is $1,036 to $4,085.

"If a country can maintain the per head income threshold of the World Bank
for three consecutive years, it will be defined as the MIC (Middle-Income
Country)," said a senior GED official.

As per the WB definition, Bangladesh may achieve the MIC status after a year if
it can maintain the current per head income threshold for one more year, he
added.

The GED in its macro-economic projection said the government would have to
ensure investment-friendly environment raising private sector credit flow with
lower interest rate, some tax liberalisation measures and restructuring of the
public-private partnership system.

Meanwhile, the GED has also proposed to cut the GDP growth projection for the
next five years due to the impact of political turmoil on the economy and lower
than expected growth in different macro-economic indicators over the last five
years.

Professor MA Taslim of the Dhaka University told the FE that continuation of
more than 6.0 per cent economic growth in FY2015 would be very difficult as
investment is not picking up due to lack of business confidence.

"Not only the economic growth, keeping the other economic indicators like
GDP-investment ratio will be very difficult for the government amid the
political turmoil and other shocks," he said.

Although boosting private investment is the best tool for economic upgradation
for the country, a cut in its projection following the past stagnant-like
scenario will affect improvement of the country's overall economic growth,
Professor Taslim told the FE.